Abstract

This article addresses an important trend in contemporary income inequality—a decline in labor’s share of national income and a rise in capitalists’ profits share. Since the late 1970s, labor’s share declined by 6 percent across the U.S. private sector. As I will show, this overall decline was due to a large decline (5 to 14 percent) in construction, manufacturing, and transportation combined with an increase, albeit small (2 to 5 percent), in labor’s share within finance and services industries. To explain the overall decline and the diverse trends across industries, I argue that the main factor leading to the decline in labor’s share was the erosion in workers’ positional power, and this erosion was partly an outcome of class- biased technological change, namely computerization that favored employers over most employees. I combine data from several sources to test for the independent effects of workers’ positional power indicators (i.e., unionization, capital concentration, import penetration, and unemployment) and the direct and indirect effects of computer technology on changes in labor’s share within 43 nonagricultural private industries and 451 manufacturing industries between 1969 and 2007. Results from error correction models with fixed-effect estimators support the study’s arguments.

Capitalists’ profits play a crucial role in the process of social stratification. Yet inequality research largely neglects the dynamics of national income distribution between capitalists’ profits and workers’ compensation, and focuses overwhelmingly on distributional issues within workers. Even studies on income inequality between social classes or on top income shares tend to identify the capitalist class as a subset of the self- employed. This approach ignores the fact that corporations, not individual business owners, dominate production for private profit in modern capitalist economies. To fill this lacuna in inequality research, I analyze income inequality between capitalists’ profits and workers’ income in U.S. industries over the past four decades, a period in which income inequality surged.